Sooner or later, retirement is upon everyone, ready or not. Small business owners face a double challenge: Finding and keeping people who matter long term to their business, and funding a personal nest egg for the day their own retirement comes.
Although the plans (and obscure government acronyms) are plentiful, the bottom line is:
- Simplicity for your employees
- Effective tax treatments for both you and your people
- Confidence that the plan will work
Select a plan that employees can contribute toMost small businesses that have retirement plans use the type that includes an employee contribution, such as a 401(k).
Internal Revenue Service Web site. See plan details in the PDF file of IRS Pub. 560 Retirement Plans for Small Business.
Understand the rulesSEP or SIMPLE? 401(k) or IRA? In an effort to serve many kinds of business entities, the government has created its usual thicket of confusing options. Get a grip first on where your organization fits.
short guide (a PDF file) to choosing a plan.
Regulatory concerns for small businessOnce you decide to offer a retirement plan, your legal responsibilities to members of the plan kick in, and they can last for a long time.
fiduciary responsibilities under federal law is posted by the U.S. Department of Labor.
See your local bankerBanks have moved into provisioning retirement plans, and you might find that your existing relationships can lead you to the best deal, as well as personal guidance.
Price a national nameMutual funds sellers have begun to work the small business vineyard too. Don't assume that you don't have enough employees to qualify. Big-name operations run retail branches across the country and most are anxious to roll up small and medium-sized business before the banks get the customers.
Talk to your tax preparerThe government dangles plenty of carrots to both you and your employees to take part in some kind of retirement plan. They know full well that destitute retirees will fall to future taxpayers, so take advantage of the upside offered now.
- So-called defined-benefit plans, what most people mean when they say "pension plan," are more expensive to start and run, but they can offer some advantages. Talk to your accountant in detail on this one.
- Don't put it off. A retirement plan for your employees (and yourself) is a great retention tool and offers tax savings today.
- Carefully consider how much it will cost to operate your plan. A company with only a few dozen employees is far different, cost-wise, than several hundred. When comparing offerings, take into account current headcount and future growth.
- Strangely, employees often fail to join retirement plans. Make sure they understand fully any matching incentives and that your provider is willing to conduct information sessions. Otherwise, the retention aspect is lost.